An independent volatility benchmark for Stablecoins
The GOSCI mission is to create an independent volatility benchmark for Stablecoins.
Many in the cryptocurrency community worry that Facebook’s cryptocurrency will usher in centralized corporate control on a global scale.
This what motivated us to launch GOSCI – Global Open Source Currency Index. We want a level playing field via a benchmark that is independent from institutional control (either corporate or government).
The best Stablecoin is the most stable (aka least volatile) Stablecoin. Low volatility not corporate clout is the measure of excellence.
The GOSCI Idea
GOSCI (Global Open Source Currency Index) is designed to be the exact opposite of Bitcoin and other cryptocurrencies in three ways:
1. GOSCI is Non Volatile by design. It is a model created from a basket of Fiat currencies, comprising more than 90% of global GDP.
2. GOSCI is a model/index, not a stablecoin. You can use GOSCI to benchmark any Stablecoin – including Stablecoins from corporate giants such as Facebook.
3. GOSCI does not compete with Fiat. GOSCI is not a threat to Governments that issue Fiat Currencies, because GOSCI cannot be used directly as a store of value or a currency/medium of exchange. Even if some governments decided they did not like GOSCI, it cannot easily be shut down because GOSCI is free and open source and does not require any regulatory approval.
From a regulatory point of view, GOSCI is not a Utility Token or a Payment Token or a Securities Token or an Asset Token. GOSCI is simply a spreadsheet formula filled with data that is in the public domain – which anybody can use (it is open source).
The model is a free/open source project, created by Daily Fintech, but with an independent governance structure.
You have the option to pay for the right to use the GOSCI name and to be involved in GOSCI model governance, see later.
How GOSCI can help the Stablecoin ecosystem
You can use GOSCI to benchmark any Stablecoin. We are not in the business of benchmarking Stablecoins. Our focus is to create the least volatile basket and invite anybody to benchmark any Stablecoin against that index. You can benchmark your own Stablecoin or any Stablecoin.
There are three different approaches to creating a Stablecoin and each requires a volatility benchmark:
- cryptocurrency derivative . You use algorithms to match supply & demand of an existing volatile cryptocurrency such as ETH to create a cryptocurrency derivative that is stable.
- audit heavy/tech light. These ventures match each Stablecoin purchased with a corresponding deposit in a Fiat bank account. The Fiat bank accounts are audited so that investors can be confident that the Stablecoin is a real asset.
- algorithmic central bank. You automatically buy your Stablecoin when it is below the planned peg/benchmark and automatically sell your Stablecoin when it is above the planned peg/benchmark.
Why License GOSCI when it is Open Source?
We publish the model and the formulas. The data for the model is in the public domain (GDP data by country from the IMF). GOSCI is free, open source and permissionless. There are two benefits of Licensing GOSCI:
- You are licensed to use the GOSCI name in your marketing.
- You get a vote on changing the model weightings (see Governance).
The Bitcoin volatility problem is not going away
Bitcoin is a great store of value but flawed as a medium of exchange due to volatility. Layer two services such as Lightning Network may solve the scalability problem, enabling low value payments, but they do not solve the volatility problem. For more on the limitations of using Bitcoin as an interim store of value for payments to enable it as a Medium of Exchange please read this November 2015 post on Daily Fintech.
GOSCI is non-volatile by design.
USD Is Not The Gold Standard Of Non Volatility
USD is less volatile than BTC, but many sophisticated investors try to hedge against USD volatility risk with assets such as Gold, Bitcoin and Currency Baskets.
GOSCI is built from 36 national currencies that in aggregate account for more than 90% of Global GDP (vs about 25% for USD).
GOSCI is non-volatile by design.
Why & how we use GDP numbers for rebalancing the Index
GDP data is widely available. Even if some GDP numbers lack credibility it is the best data available to track economic activity and over the long term economic activity drives currencies.
With 36 national currencies that in aggregate account for more than 90% of Global GDP we are confident that GOSCI is non-volatile. Chasing 100% of Global GDP would add a lot of complexity with little extra benefit. There are 164 national currencies, so the 10% long tail includes 128 currencies.
When GDP changes, the index rebalances. For example if China GDP grows faster than US GDP, this will impact the currency weightings.
Why Now
At some point in the future, USD will be replaced as the global reserve currency. No global reserve currency lasts forever. In other transitions, the currency shifted to the rising economic power (e.g from Britain to America). The problem today is that the rising economic power is China and the Yuan is not credible as a global reserve currency and many countries will resist China in that role for geopolitical reasons.
The transition to the next global reserve currency coming at a time when cryptocurrencies are gaining traction is a unique moment in history.
The question is what will replace the USD?
GOSCI is designed to avoid the control of large corporations over cryptocurrencies. Many BigBank and BigTech companies, such as JP Morgan and Facebook, have announced plans for their own proprietary cryptocurrency. GOSCI is designed to empower a world that is decentralised and permissionless and not controlled by large corporations.
Any single Fiat currency will be resisted for geopolitical reasons, so the three non-corporate alternatives are a) IMF SDR b) Gold or Oil c) Bitcoin.
Why GOSCI is a better volatility benchmark than the IMF SDR.
The SDR is an international reserve asset, created by the IMF (international Monetary Fund) in 1969 to supplement its member countries’ official reserves. So far SDR 204.2 billion (equivalent to about US$291 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. The SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system, the SDR was redefined as a basket of currencies.
- It is easier to change the GOSCI model index. We believe that 5 currencies accounting for 65% of Global GDP is not enough, but imagine the politics of getting 36 countries making up 90% of Global GDP (ie the GOSCI model) approved by the IMF.
- GOSCI is a more neutral and open solution. GOSCI is neutral from a geopolitical point of view and no institution or country can control GOSCI.
Why GOSCI is a better volatility benchmark than Gold or Oil.
Gold is flawed as a volatility benchmark for two reasons:
- Gold is traded by speculators. Therefore it is volatile.
- Gold has an unpredictable inflation policy. If new sources of Gold are found (or improved mining) there will be inflation, but that rate is unpredictable.
Oil has the same flaws as a volatility benchmark as gold.
Governance
GOSCI was created by Daily Fintech, but with an independent governance structure.
One License One Vote builds on a well proven principle. You can only buy one GOSCI License. If you pay the GOSCI Annual Licensing Fee, you get a vote on how to change the model (in addition to the branding rights).
The way Governance works in GOSCI:
- Anybody can create a GOSCI Model Improvement Suggestion (GMIS). For example you may suggest adding Gold at a 10% weight. You do NOT need to be a Licensee to suggest a GMIS (only to vote for one). We want the brightest minds suggesting GMIS, regardless of their financial resources. We will publish the method for doing this within one year (ie the current model will be in place for at least one year).
- Licensees vote on the GMIS. Once 10% of Licensees vote for a GMIS it is published (ensuring that the wider community gets a chance to look at it). Voting is done once a year on all GMIS submitted in the prior year.
- Once more than 51% of Licensees vote for a GMIS it is implemented.
To have influence, you need to be a Licensee (but the annual fee is low enough for even bootstrapped or self funded early stage ventures).
Annual License Cost
0.1BTC (translates to USD1,000 per year if BTC is at USD10,000).
Why Licensees pay in Bitcoin not GOSCI or Fiat
GOSCI is not an asset. You cannot buy anything with GOSCI. So you cannot pay in GOSCI (but you will be able to buy things with Stablecoins that use the GOSCI model).
As Cryptocurrencies work globally and Daily Fintech readers come from all over the world, any Fiat currency we chose would incur exchange rate risk and fees – and it may seem odd for a site that writes a lot about Crypto enabled payments innovation to charge in Fiat currency.
By charging in Bitcoin, we give Licensees an incentive to buy sooner rather than later. We assume that anybody who gets this far in a nerdy post knows how to pay in Bitcoin and is a long term Bitcoin bull (and therefore expects the price to rise from here). If you want to protect against Bitcoin increasing in value you can buy up to 5 years of License in advance.
Please send an e-mail to julia at daily fintech dot com if you are interested in licensing GOSCI.
The Model
You can see the model in this Google Sheet. We use data from the IMF for GDP per country.
References